Answer to Question #197766 in Other for Umar Zohaib Asghar

Question

Peking Duct Tape Company has outstanding a $1,000-face-value bond with a 14 percent

Coupon rate and 3 years remaining until final maturity. Interest payments are made

semiannually.

a. What value should you place on this bond if your nominal annual required rate of return is (i)

12 percent? (ii) 14 percent? (iii) 16 percent?

b. Assume that we are faced with a bond similar to the one described above, except that it is a

zero-coupon, pure discount bond. What value should you place on this bond if your nominal

annual required rate of return is (i) 12 percent? (ii) 14 percent? (iii) 16 percent? (Assume

semiannual discounting.)

Answer 1

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